Opinion: These 7 little-known health-care ETFs are up 20%-plus in 2018

While technology stocks tend to make the flashiest headlines, the health-care sector remains one of the most consistent outperformers.

The top health-care exchange traded fund (ETF) by assets, the $18 billion Health Care Select SPDR ETF
XLV, +0.93%
has gained about 10% this year vs. 6% for the S&P 500 Index
SPX, +0.59%
And longer term, it’s up about 205% in 10 years vs. about 145% for the S&P 500.

The flagship XLV fund is not alone, either. The No. 2 health-care-oriented ETF by assets, the $9 billion iShares Nasdaq Biotechnology ETF
IBB, +1.57%
is up about 7% this year to slightly outperform the broader market, but has done even better in the long term; the shares are up about 330% over 10 years.

It’s no surprise, then, that investors closely follow these health-care funds and continue to invest plenty of funds in the leaders. However, there is a variety of more tactical ETFs to play in this sector beyond popular health-care or biotechnology funds.

Here are seven top-performing health-care ETFs that have trounced the S&P 500 in 2018, and have doubled the 10% return of the popular XLV fund.

Janus Henderson Obesity ETF

2018 performance: 20% vs. 6% for the S&P 500

There are plenty of complex mega-trends in health care, including the demographic shift that is resulting in a growing population of older Americans needing more services as well as a favorable regulatory environment that is streamlining research into “orphan drugs” to target diseases with few effective treatments. Then there’s the broader and much simpler health issue of overweight Americans, with nearly four in 10 Americans categorized as obese, according to the Centers for Disease Control.

The Janus Henderson Obesity ETF
SLIM, +0.98%
is a way to profit from this trend, with holdings that include diabetes-treatment company Novo Nordisk
NVO, +0.18%
and dialysis provider DaVita
DVA, -0.90%
as well as weight loss and nutrition plays like Herbalife
HLF, +1.55%
and Medifast
MED, +2.28%
In an age of obesity, investors can fatten their wallet with targeted plays like this on that trend.

iShares U.S. medical-devices ETF

2018 performance: 20% vs. 6% for the S&P 500

While drugmakers get a lot of attention, either via Big Pharma stocks that offer dividends or small-cap biotechs that offer impressive growth potential, many investors overlook the boring medical-products companies that deliver the tubes, pumps and tools that are necessary to make medical facilities function.

The iShares U.S. Medical Devices ETF
IHI, +0.51%
offers a way to play this corner of health care, however, with top holdings that include health-care products giants such as Medtronic
MDT, +0.99%
Baxter International
BAX, +0.73%
and Edwards Lifesciences
EW, +0.05%
While some of the products offered by these companies are indeed high-tech, such as artificial heart valves, many are less glamorous, such as catheters and blood-pressure cuffs. But despite their flash, these items are staples, and medical offices and hospitals nationwide remain big revenue sources for these companies.

iShares U.S. Healthcare Providers ETF

2018 performance: 22% vs. 6% for the S&P 500

A focused way to play the business of health-care insurance is via the iShares U.S. Healthcare Providers ETF
IHF, +0.49%
Top holdings in this fund include UnitedHealth Group
UNH, +0.40%
CVS Health
CVS, -1.21%
Anthem
ANTM, +0.88%
and Aetna
US:AET
to name a few.

Like it or lump it, the U.S. has a for-profit system of care and the current leadership in Washington is intent on keeping it that way. And when you bake in less regulatory red tape and bigger tax cuts for domestic health-care companies, it all adds up to a pretty nice uptrend for insurance companies in 2018.

It’s also worth noting that a higher interest rate environment could help insurance companies that comprise the bulk of the health-care providers ETF, since they reinvest the “float” of premiums in low-risk, interest-bearing assets.

Invesco DWA Healthcare Momentum ETF

2018 performance: 23% vs. 6% for the S&P 500

The Invesco DWA Healthcare Momentum ETF
PTH, +1.05%
is a potentially volatile play, since it relies on fast-moving picks, but one that has been able to deliver big rewards in 2018 despite a bit of increased risk. This fund layers in qualitative metrics such as relative strength and momentum data in addition to simply slicing up the market based on a sector or industry theme as many funds do.

The result is a targeted list of about 50 common stocks, consisting mostly of health-care equipment and biopharmaceutical companies listed on the Nasdaq. That includes fast-growing remote health-care service provider Teledoc Health
TDOC, +1.03%
which has more than doubled since Jan. 1.

The fund is rebalanced and reconstituted quarterly to reflect the latest trends, too, to avoid riding winners too long after the momentum rolls over.

Ark Genomic Revolution Multi-Sector ETF

2018 performance: 23% vs. 6% for the S&P 500

Another health-care play with an elevated risk profile is the Ark Genomic Revolution Multi-Sector ETF
ARKG, +1.69%
This fund harnesses the appeal of biotechs, offering a chance to tap into amazing gains if and when research into new treatment bears fruit, but with a unique focus on genetic-related businesses. This includes health-care names that use gene editing or bioinformatics in their business.

At present, the fund holds a concentrated list of 37 picks including Intellia Therapeutics
NTLA, +5.15%
and Illumina
ILMN, +1.44%
as the top holdings, which are up 33% and 48%, respectively, since Jan. 1.

If you’re interested in biotech but find funds like the iShares IBB biotech fund too focused on bigger companies, the ARKG fund might be for you, as it has a more development-stage feel.

SPDR S&P Health Care Equipment ETF

2018 performance: 27% vs. 6% for the S&P 500

A mix of established names as well as smaller and more specialized players, the SPDR S&P Health Care Equipment ETF
XHE, +0.42%
is a powerful way to play the tailwind in the health-care sector but carve out some of the muddier consumer health or insurance-related plays in many large-cap funds. There’s also less product pipeline risks, such as patent expirations for Big Pharma or risky clinical trials for cash-burning development-stage biotechs.

Holdings include more popular stocks such as robotic surgery firm Intuitive Surgical
ISRG, +0.36%
and large-cap Abbott Laboratories
ABT, +1.57%
as well as niche investments like Tandem Diabetes Care
TNDM, -1.01%

This play is in many ways related to the aforementioned iShares IHI fund; however, it is not quite as top-heavy, with the largest position representing less than 4% of the portfolio and the list of holdings focused on smaller companies in general.

Invesco S&P SmallCap Health Care

2018 performance: 40% vs. 6% for the S&P 500

Speaking of smaller names, in 2018 it helps to think small across the board in health care. As my colleague Philip van Doorn pointed out a few weeks ago when highlighting health care as a top small-cap strategy, the Invesco S&P SmallCap Health Care ETF
PSCH, +0.70%
has been on a tear in 2018. The fund holds about 70 small-cap health-care players, including biotech company Ligand Pharmaceuticals
LGND, +0.81%
and account-management and billing-service provider HealthEquity
HQY, +1.40%
both of which have roughly doubled in the past year or so.

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